Leading Article: Europe should play it even longer

IF THE Uruguay round of international trade talks were a soap opera, it would have been axed years ago. Week after week, grey-suited men standing outside office buildings make threats about their business negotiations, and deliver dire warnings about what will happen if no agreement is reached. The story drags on week after week - with neither a murder nor a bedroom scene in sight.

It may be tempting, therefore, to change channels when Sir Leon Brittan appears on television later today after his meeting in Brussels with Mickey Kantor, the US trade representative. But for once, a clear issue is at stake. The EC has just introduced new rules that discriminate against foreign firms bidding for government contracts. The Americans are angry that US business will suffer, and they have threatened retaliation unless the Europeans withdraw the rule. This threat has left Sir Leon, who speaks for the Community on international economic issues, with a feeling of injured virtue. His advisers complain that the United States has had its own Buy American rules since 1934, which allow US firms to win contracts even when foreigners underbid them by 6 per cent - double the margin allowed to European firms by Brussels. Discrimination against foreign bidders in the United States is worse still at state level.

Nevertheless, the Utilities Directive that contains the new European rule is extraordinarily ill-judged. Never mind that the broad thrust of the directive is to open markets rather than to close them. The offending article gives formal backing to discrimination that has been covert until now; and it has been put in effect at the worst possible stage of the current round of world trade talks. The new Clinton administration is packed with proponents of 'managed trade', who believe that private pacts between governments, rather than competition in the marketplace, are the way forward for international business. Mr Kantor has little expertise in trade economics, and all too much in the arts of big-stick negotiation. Sir Leon, by contrast, has to look over his shoulder at the trade hawks who opposed last year's concessions on farm trade and believe that the plucky little European David needs to stand up to the American Goliath. (In fact, the 12 EC economies combined are bigger than that of the United States.)

Both sides should look to their own longer-term interests. Industrial policy, when it means the promoting of specific industries, is widely discredited. Its proponents in Europe and the United States are coming to see that even in Japan it has at best a blemished record. The blanket subsidies of buy-domestic procurement policies are worse still: all too often, they only encourage inefficiency and high costs - with taxpayers' money. For the sake of the US taxpayer, Mr Kantor should agree to Sir Leon's plan for a study into the two sides' public-contracts policies; for the sake of taxpayers in Europe, Sir Leon should in return suspend the buy-European provisions of the new directive.